Lessons for beginners in chili agribusiness

Mar 13th 2016

Chilies
are good, they add magic to every spoon of food you take, and even
more, they can spice up your wallet too. They
are
a good product, they don't give a lot of stress, whether harvested green,
or left on the farm to turn red, you
will still get a buyer. If you don't get a buyer soon, you can
harvest them, dry them and sell them as dried chilies. Either way,
chilies won't stress you much as compared to your other highly
perishable produce.

This
kind of analogy got Judy to join the chilies club. She is a newbie
who has recently delivered her third harvest to an exporter thanks to the MFarm team, a deal which has seen her improve her earnings.

Spiced
up Market research;

Judy
is a great beans farmer and an entrepreneur. She has been thinking
about how to expand her agribusiness. As we came to the end of 2015,
she hit the markets for a thorough research. Her first stop was
MFarm. She spend some time there looking at the price trends and
that's when she discovered something quite interesting about
chilies. If she invested in chili production in October, she would
be smiling all the way to the bank come February 2016. This is
because, during this first third of the year, chili prices are
usually on a upswing.

Her
next stop was our “Marikiti”,
the agricultural market next to Muthurwa.
There she met a broker who promised to buy and supply her produce
once ready.

And
just like that, she was set. She bought a kilo of African Bird Eye
(ABE) chili seeds from the broker at Ksh 3,000 and planted around
October 2015.

The
production;

As
a first time farmer, she decided to do a trial on ¼ of an acre in
her farm in Kilimambogo.
She coughed out approximately Ksh 32,400 in total for her chilies to
hit market ready. She has so far harvested thrice.

Operation
break-even;

With
Ksh 32,400 consumed to produce these chilies, Judy's goal is to
break even. Her mind is set to recover this production cost. How long
will it take her to cover her costs?

For
the sake of simple calculations, let's assume she will not be
incurring any further production costs.

For
the first delivery, every went smooth. The broker came as promised
and bought all her produce at Ksh 40 per kilo. She had harvested 210
kilos meaning she made Ksh 8,400. She spend Ksh 2,000 to harvest this
210 kilos meaning she made a profit of Ksh 6,400 (Ksh 30.50 per
kilo). Now she has Ksh 26,000 to go, that is, Ksh 32,400 – Ksh
6,400.

For
the second harvest, the broker got cockier and decided to change the
terms. He told her to transport the produce to Kilimambogo shopping
center herself, which she did. With this new development she decided
to strike some negotiation for more money only for the broker to
stick at Ksh 40 per kilo as usual. She had harvested 150 kilos hence
went home with Ksh 6,000 that day. The total cost incurred to harvest
and transport this second delivery amounted to Ksh 2,100 which means
she made a profit of Ksh 3,900 (Ksh 26 per kilo), 15% lower than
first delivery's profits. Now she has Ksh 22,100 to go (Ksh 26,000 –
Ksh 3,900).

From
the two transaction, her average profit is Ksh 28 per kg. This means
for her to hit the remaining Ksh 22,100 she has to deliver
approximately 790 kilos of chilies. She is averaging at 180 kilos per
harvest so far, meaning she has to do 4 more deliveries to hit her
target. This is not nice, and she knows it.

It
is always a good plan to cut out the middle man;

For
her third delivery, she reached out to MFarm and was connected to a
buyer. She delivered 240 kilos at a price of Ksh 70 per kilo, a total
revenue of Ksh 16,800. Because of the export market requirements, she
incurred some extra costs in packaging. In total, she coughed out Ksh
5700 to deliver this 240 kilos to the buyer's warehouse in Embakasi.

She
made a profit of Ksh 11,100 (Ksh 46.25 per kilo),52% and 78% higher
than first and second delivery profits per kilo respectively. Now
all she needs is Ksh 11,000 more to hit her target. With one more
delivery just like this one, she is set to starts enjoying profits of
her hard labour. She has struck a long term deal with this buyer and
that means for all of her subsequent deliveries, she will be smiling
all the way to the bank.

Conclusion;

Well,
it can't be that ideal, but it's not far from the reality either. As
she continues to harvest, she will be spraying her produce from time
to time hence production costs will still rise. But her efficiency in
marketing is increasing too. For example, instead of harvesting once
a week, she is harvesting once a fortnight, meaning she is getting
more kilos per harvest economically speaking.

With this, the buyer is now happy to pick the chilies right from Judy's
farm getting the right quality ones(rejection cases are real in
export market). On the other hand, Judy saves herself from the transportation
nightmares. A win-win business deal. Her trial has been a success.

Do
you have chilies to supply?

If
you have Green Bullet chilies, Green Bird Eye Demon F1, Red Bird Eye
Demon F1 or Dried Long Red Cayenne chili. Contact us now and we will
get you connected.

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